The Deadline Approaches How Will Health Care Reform Impact Your Practice?

On April 12, 2006, then-Gov. Mitt Romney signed into law the Massachusetts Health Care Reform Plan. This legislation is intended to increase access to health care by requiring all Massachusetts residents to have health insurance by July 1, 2007. To accomplish this, the law requires shared responsibilities among individuals, employers, health plans, and state agencies.

One of the key features of the new law is the creation of an agency, the Commonwealth Connector Authority, to assist individuals and employers with the purchase of health insurance. Through funding from federal and state programs, this law will provide subsidies for individuals and employers with 50 or fewer employees that will make it more affordable to obtain health insurance coverage than ever before in the Commonwealth of Massachusetts.

Most practitioners recognize the increased revenue opportunities now that an additional 500,000 residents will be insured; however, practitioners may not be aware of what this law may require of them as employers.

The objective of this article is to focus on those employer responsibilities and how they may impact your practice. The employer requirements depend on how many full-time equivalent (FTE) employees you have, so the first step is to calculate the number of FTE employees. To do this, take the sum of all payroll hours, including vacation and sick leave, for all employees, including temps, part-time, full-time, and seasonal employees, and then divide by 2,000. Self-employed individuals are not considered employees.

Rules for Larger Practices

If your practice has 11 or more FTE employees, you are required to do the following:

• You must adopt and maintain a Section 125 plan by July 1, 2007 that meets the regulations of the Commonwealth Connector Authority. A Section 125 plan allows employees to pay for their portion of health insurance coverage on a pre-tax basis and is not subject to state and federal income tax or federal payroll tax withholdings. A Section 125 plan benefits both the employee and employer by lowering payroll taxes.

• You must make a “fair and reasonable” premium contribution toward health insurance for your employees. This is satisfied in one of two ways. Either you have at least 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} participation by full-time employees in your group health plan (this does not require the employer to make any particular level of contribution — though it must contribute something — nor does it require any particular level or type of coverage); or you offer to contribute at least 33{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the premium cost of the health insurance for all full-time employees. (A full-time employee is an employee who works 35 hours or more per week. Independent contractors, seasonal employees, and temporary employees are not considered full-time employees.)
• You are required to file an annual Employer Health Insurance Responsibility Disclosure (HIRD) form with the Division of Health Care Finance & Policy. In addition, you must keep on file for three years a signed employee HIRD form for each employee that declines enrollment in your health plan and/or declines participation in your Section 125 plan.

If you fail to make a “fair and reasonable” premium contribution, you will be required to make a “fair-share contribution” of $295 per year per employee. In addition, if you fail to meet all the above requirements and your employees receive state-funded health services aggregating at least $50,000 in ay one year, you may be assessed a “free-rider surcharge” of between 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and 100{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the cost of such free care.

Rules for All Practices

If you have fewer than 11 FTE employees, you do not have to comply with the above requirements. However, there is another requirement of the law that you must comply with regardless of how many FTE employees you have. This is the non-discrimination provision, which states that you must offer a single level of benefits and premium contributions to all employees, and you cannot make higher health insurance premium contributions in favor of higher-earning employees or in favor of a certain classification of employees.

For example, you can’t pay the full premium for one class of employees, such as doctors, and only 50{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the premium for all other employees. This may necessitate revisions to provider employment contracts and compensation arrangements. It is not yet clear whether there will be any transition rules or grandfather clauses.

Employers are not required to offer coverage to retirees or part-time, temporary, or seasonal employees. Full time is defined as at least 35 hours per week. However, part-time employees (those working at least 64 hours per month) must be allowed to participate in a Section 125 plan, even though the employer does not have to make a contribution on their behalf. Employers who self-fund their health insurance plan are exempt from the nondiscrimination provisions.

The law also has other provisions and regulations that may change, but currently provide minimum coverage guidelines regarding prescription deductibles, annual deductibles, and annual out-of-pocket maximums.

The new-hire eligibility period for health insurance coverage cannot exceed five months, and the waiting period for Section 125 plan eligibility cannot exceed two months.

The Massachusetts Health Care Reform Law has its critics and will inevitably undergo changes as it evolves. However, it’s a comprehensive and well-intentioned attempt to provide residents at all levels of income access to health insurance and health care.

It is also intended to help connect small employers and their employees with a choice of good health plans and the tools to help them choose the plan that is right for them.

After all, employers who provide their employees with access to health insurance are able to recruit and retain good workers, enhance employee loyalty, and improve the productivity of their businesses. For more information, log onto www.mahealthconnector.org v

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., in Holyoke, certified public accountants and business consultants;             (413) 536-8510      .